Guess what Lehman Brothers? You screwed up

Today the business news outlets are running wild with a report by a U.S. bankruptcy court examiner that lambasts Lehman Brothers.  The report holds Lehman Brothers, its executives and its auditor Ernst & Young responsible for the firm’s collapse.

Most scathing of all, the report details the ways in which Lehman executives manipulated the firm’s financial statements, lied about the worth of financial assets on the firm’s balance sheet, and lied to its board of directors about the risks inherent in the Firm.

None of this comes as a surprise to me.  I have been saying for a year and a half that the next financial crisis will look just like the last financial crisis and is inevitable unless three things change: the institutions that got us here have to change; the executives that headed these institutions have to change or suffer the consequences of previous bad behavior; and the ideas about how the world of finance ought to run have to change, too.  The examiner’s report basically supports my “Proposal for Change.”  The most scathing accusations all fall under the umbrella for change I outlined.

What does come as a surprise to me is the lack of public and Congressional support for change.  The public can be forgiven because much of what has to change is technical and jargon-laden in nature.  But Congress is disgustingly unmotivated to affect real change.  Ugh!  Again, the argument against change is that too much legislation is anti-capitalist.  However, financial institutions are a different animal than a manufacturer.  Imagine if Apple were to suffer the same shortcomings that Lehman Brothers did?  That is, Apple executives inflated the value of the firm’s assets, they lied to the Board about risks inherent in the business, and they manipulated the financial statements.  The effect would be isolated to Apple, its suppliers, and retailers that sell the company’s products.  But when a financial institution goes down the effects are global in proportion.

So the “one-size fits all” capitalist regulatory environment does not fit financial institutions.  This is because money is the blood of the economic body.  If a huge portion of the blood is corrupted, the whole body fails.  Going back to the Apple example.  If Apple fails it’s like a finger nail falling off the body.  Eventually it grows back.  When an institution like Lehman Brothers is corrupted, the blood it pumps into the system causes disease in the whole system.

Hello?  Anybody on the Republican side of things listening?

Jason